Constructive Change - Differing Interpretations of Contracts
(Editor’s Note. Changes and delays occur frequently during the course of a government contract. The ability to recognize a constructive change and effectively obtain a price increase is critical to ensuring the profitability of a contract. The best discussion of this topic we have found comes from Professor Lane Anderson in "Accounting for Government Contracts" (Mathew Bender). Though we will not burden the reader with a long list of cases, we particularly appreciate that all the points we make in this article are backed up by relevant court or board decisions.)
If the conduct of the government during the course of work on a contract changes the contract’s requirements in some way the contractor is entitled to an equitable adjustment under the changes clause (FAR 52.243-1). A constructive change differs from an express change order in that it is usually not formal or in writing nor does it specify that an explicit change in contract requirements has occurred. We will discuss the typical occurrences that would give rise to a constructive change and briefly discuss the notice requirements when such a change occurs.
Common Causes of Constructive Changes
Differing Interpretations of the Contract
A difference in the interpretation of the contract most commonly surfaces when the contractor intends to use a procedure or use some component or design that would result in a performance the CO considers inadequate or otherwise different than what the government expected. Since a government contractor is entitled to follow the least expensive means of achieving the specified performance of the contract, the CO’s insistence the contractor follow a higher and more expensive standard is considered tantamount to a change order.
A question often arises whether the CO’s actions should be construed as an order to perform changed work. Since the contractor is under a contractual duty to proceed in accordance with orders, a verbal or written order to perform work is held to give rise to a change (even if the CO believes it is merely correctly interpreting the contract). Either positive statements a CO makes about contract specifications having a certain meaning or negative statements made in reviewing a proposed design is usually taken to be an order.
On the other hand, if a contractor performs extra work without having received the equivalent of an order it is considered "volunteer" work and in such cases the government is entitled to refuse reimbursement for additional costs incurred. All the facts should be considered when determining whether extra work is an order and hence a change or is volunteered. Did the contractor take on the work on its own initiative with no expectation of reimbursement? What was communicated between the parties? Was a notice filed promptly by the contractor after receiving an alleged order (discussed below)?
{TAG_FORM_TITLE}
To discuss your needs, contact Bill Lennett, Principal, at 1-925-362-0712 or email him at
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
.
